Thread by @SubhadipNandy16

Received quite a few questions on VIX, that why isn't VIX spiking up in this volatility and in this downmove ( VIX generally spikes up when index goes down, that's why it's also called the ' Fear Index'
The question is valid. This is what I think is happening :

VIX is calculated on the order book of options, this months and next months so close to expiry. VIX is kinda weighted average of the individual options volatilities

Volatility or IV is basically demand and supply. More demand for options, higher IV and more supply of options, lower IVs

So this low VIX would mean there has been a lot of selling pressure on options by option sellers who do not expect the market to make any major directional move

This in a way is dangerous. If the market makes a directional move, specially on the downside, the covering by sellers will lead to a fast spiral downside at sharp speed.

Markets making a downmove without a rise in VIX is dangerous, because if we go down further, VIX will spike for sure and that will set the cat among the pigeons.
Stay alert, trade safe.